Recent Posts

The HSBC China manufacturing PMI flash estimate for May dropped to 51.1 from 51.8 in April, fitting the consensus view and my own view that China is now slowing down. As a result of continuous tightening and bad data, Hong Kong and China stock markets are being crushed.

Besides the lack of credit and workers, Chinese companies are facing another big problem which I have yet to discuss: power shortage.

FT Alphaville has reported earlier this month that there are warnings that power will be cut in China, and we certainly see more confirmation these days on that. While seasonal power shortage is not something new for China, the shortage this year is said to be the worst since 2004.

Power shortage has been attributed to drought, which affected the hydroelectric power production. Also, because of the price cap for power and high prices for coal, power stations are producing electricity at loss, and they are not willing to continue with this situation. Of course, last month we have actually seen the National Energy Administration raising the power use forecast for the year, suggesting that the economy was still doing well with strong demand for energy (contrary to more recent data which suggested that the slowdown is more than possible).

One obvious solution is to allow power stations to raise prices such that power producers can increase production without worrying about the losses. That will not be good as the country is fighting inflation, although I suspect that the impact on the headline inflation would be limited.

It is not very clear to me if power shortage will affect economic growth much. My guess would be that power shortage (and potentially higher prices of electricity) by itself may not be much of a problem for these companies. The bigger problem is that companies are now squeezed by three fronts: shortage of credits, shortage of labour, and shortage of power. The combination of all three of them would be a larger problem than the individual problems.